Updated: Overview of Overtime Rules

Posted: November 23, 2016

A federal judge on November 22 issued a preliminary injunction, blocking implementation of the overtime rules, saying that the Department of Labor exceeded "its delegated authority and ignores Congress's intent." An appeal by the government is likely. It appears that the new rules will not take effect December 1, 2016, as planned; however, churches and ministries should consult with their legal and accounting advisers to determine any next steps in accordance with state and local laws.

For more information on the decision, The Wall Street Journal has a short article detailing the decision and its potential impact.

The Fair Labor Standards Act ("FLSA") requires that most employees in the United States be paid at least the federal minimum wage for all hours worked up to 40 per workweek and overtime pay at one and one-half times the employee’s regular rate of pay for all hours worked over 40 per workweek. The federal minimum wage is $7.25 per hour; however, many states and some municipalities have a higher minimum wage. Additionally, some employees may qualify for one or more exemptions from the minimum wage and/or overtime requirements.

The U.S. Department of Labor ("DOL") created new overtime rules in May of 2016. Among other changes, the minimum salary required to qualify for the administrative, executive or professional exemptions (the white collar exemptions) is raised from $455 per week to $913 per week, effective December 1, 2016. The new rules also establish a standard for automatically updating the required salary every three years, beginning January 1, 2020.

How will this impact your ministry?

Ministers and clergy may qualify for the white collar exemptions if they meet the requirements. Courts have also recognized a ministerial exception to the FLSA. There are many positions in any given ministry or organization, however, that would not qualify for the ministerial exception or any other exemption.

Facts and circumstances make a difference.

If you have questions regarding the exemption status of individuals in your organization, you should seek legal advice from an attorney in your local area. GuideStone is providing the information in this guidance as a general overview of the impact of the new DOL overtime rules on ministry organizations and should not be construed as providing legal advice. Since facts and circumstances drive conclusions concerning every individual employee, we highly recommend that churches and ministry organizations consult with an experienced lawyer or human resource specialist to resolve questions or concerns affecting employment practices.

Statutory Exemptions

Section 13(a)(1) of the FLSA provides an exemption from both the minimum wage and overtime requirements for employees employed as bona fide executive, administrative, professional and outside sales employees. Section 13(a)(1) and Section 13(a)(17) also exempt certain computer employees. To qualify for these exemptions, employees must be paid on a salary basis and perform certain job duties, such as management and other non-manual work. As stated above, the DOL recently raised the minimum salary threshold applicable to these exemptions. The DOL did not alter the job duties needed to qualify for these exemptions. For more general information on the new rule, see the fact sheet published by the DOL.

Ministerial Exception

What is a “minister” for purposes of employment laws, including the FLSA?

The seminal Supreme Court case is Hosanna-Tabor Evangelical Lutheran Church v. EEOC, et al. 132 S.Ct. 694 (Jan. 11, 2012). In this case, a fourth grade teacher, who taught mostly non-religious subjects at a church-operated school, was terminated from her employment and claimed unlawful retaliation in violation of her rights under the Americans with Disabilities Act. The Court held that the teacher was a minister within the meaning of the ministerial exception, a doctrine based on the freedom of religious organizations to select their ministers, which prohibits certain employment-related lawsuits. In the words of the Supreme Court, "[r]equiring a church to accept or retain an unwanted minister . . . intrudes upon more than a mere employment decision.” Id. at 706.

Determining which positions are ministerial always depends on the specific facts in each case. In this case, the Court asked:

Does the school hold the employee out as a minister? The job title alone is of limited importance, as many titles are equivalent to minister, including, for example, pastor, rabbi, bishop and priest. In this case, the teacher’s official title was minister of religion, commissioned. However, considering her title along with the fact that the school distinguished her from most of its members, and the fact that it required her to perform her job in accordance with religious standards, the Court found the school held the teacher out as a minister.

Does the job require religious training? Here, the teacher completed significant training, including college-level coursework and an oral examination, after which the congregation elected her as a commissioned minister.

Does the employee hold herself out as a minister? Here, the teacher did so in several ways, including formally accepting her call to religious service, claiming a tax allowance that is available only to ministers and representing to the local church council that she regarded herself as a minister.

Does the employee carry out the church's mission in performing her job duties? Here, the teacher’s duties specifically included giving religious instruction although it was not her primary responsibility.

Applying similar standards, other courts have determined that ministers are not entitled to the minimum wage or overtime pay because they are not considered employees within the meaning of the FLSA.

Other Employees

A ministry organization may employ numerous individuals who may not qualify for the ministerial exception or any other FLSA exemption. A few examples of individuals who are generally non-exempt include secretaries, custodians, maintenance staff, A/V operators, graphic design artists and security personnel.

Example: Church secretary working 60 hours a week, hourly, non-salary

The secretary must be paid at least $7.25 per hour up to 40 hours per workweek, and any time over 40 hours per workweek must be time and one-half pay. The base amount the secretary would receive weekly for compensation is $290 ($7.25 x 40 hours). Because the secretary is working 20 hours overtime per week, those hours must be paid at a rate of $10.875 ($7.25 x 1.5). Therefore, overtime compensation is $217.50 ($10.875 x 20 hours) per week. The total compensation for the secretary is $507.50 ($290 + $217.50) per week.

The secretary might offer to donate 20 of those hours and work as a volunteer. This is not permissible because an individual cannot volunteer for the same work and duties for which they would otherwise be compensated.

Example: Maintenance staff individual working 40 hours a week, salary at $26,000 per year

Under federal law, even if a non-exempt individual is salaried, the salary must meet federal minimum wage standards, and the individual must receive overtime for any hours worked over 40 in a workweek. To determine whether a salary meets minimum wage standards, divide it into weekly increments; then divide it further on an hourly basis. In this example, $26,000 salary is the equivalent to $500 per week ($26,000 / 52 weeks). $500 per week is $12.50 per hour ($500 / 40 hours), which exceeds the minimum wage for a 40-hour workweek.

However, what if this maintenance staff individual is employed in the city of Berkeley, California? Beginning October 1, 2016, the minimum wage in that municipality is $12.53 per hour. His salary would not comply with local law. This example highlights the importance of seeking legal advice in the locality in which your organization is located. Minimum wage laws can vary by state and city.

Example: Graphic design artist, working 50 hours a week, salary at $42,000 per year

At first glance, this seems to be within the parameters of the FLSA because a salary of $42,000 per year breaks down to about $807.70 per week, or $16.16 an hour, which complies with the federal minimum wage and overtime requirements. However, what if you determine that because of the graphic design artist's job duties, he could qualify as an exempt employee under the creative professional exemption? Creative professionals are exempt from the FLSA's minimum wage and overtime requirements. Remember that under the DOL's new rule, the required salary for the professional exemption will be raised to $913 per week. Even if all other requirements for the exemption are met, the graphic design artist's salary must be increased (as of December 1, 2016) to at least $47,476 annually before he qualifies for the exemption.

As these examples demonstrate, proper employment practices can get complicated rather quickly, especially when an extra layer of laws at the state and municipal level can increase pay for individuals (remember the Berkeley, California example?).

State and Local Laws

As of September 2016, 29 states have a minimum wage higher than the federal minimum wage. These wages range from $7.50 per hour in Maine and New Mexico to $10.00 per hour in California and Massachusetts. Additionally, many state laws automatically increase the minimum wage at future, scheduled times. Other jurisdictions with a minimum wage higher than the federal minimum wage include Washington, D.C. ($11.50/hr.), Santa Fe, New Mexico ($10.91/hr.) and Berkeley, California ($12.53/hr.). Access more general information here.

Federal Contractors

If by chance your organization performs services in connection with federal government contracts, it may be covered by Executive Order 13658, which establishes a minimum wage of $10.10 per hour for workers on certain federal contracts. For more general information, please see the fact sheet.

GuideStone Financial Resources of the Southern Baptist Convention welcomes the opportunity to share this general information. However, this information is not intended to be relied upon as legal advice. This information may be subject to interpretation or clarification over time, so GuideStone does not guarantee its long-term accuracy or how it might be determined to apply in certain situations. However, we hope it will provide you a useful frame of reference as you endeavor to carry out your responsibilities and serve your employees.